How to Prepare and Interpret a Cash Flow Statement
The cash flow statement, or statement of cash flow, is one of the three most important financial statements, along with the balance sheet and income statement. Its role is to show how the amount of cash on the balance sheet has changed from the beginning of the period to the end
The cash flow statement, or statement of cash flow, is one of the three most important financial statements, along with the balance sheet and income statement. Its role is to show how the amount of cash on the balance sheet has changed from the beginning of the period to the end. In other words, it shows the amount of cash and cash equivalents that go into and out of the business during a specified period of time.
The Three Cash Flow Statement Sections
The cash flow statement is divided into three categories: cash from operating activities, cash from investing activities, and cash from financing activities.
Cash flows from operating activities represent the cash inflows and outflows related to the revenues and expenses that are reported on the income statement. This is cash generated from the company’s goods or services. For example, cash received from customers or dividends and interest on investments, and cash paid for the purchase of services and goods for resale, salaries and wages, income taxes, or interest on liabilities.
Cash flows from investing activities reflects the cash inflows and outflows that relate to the acquisition and disposition of long-term assets as well as investments in other companies’ securities. This means cash received from the sale or disposal of property, no credit check payday loans Erwin TN plant, and equipment, or the sale or maturity of investments in securities. It also includes cash paid for purchases of property, plant, and equipment, or purchases of investments in securities.
Cash flows from financing activities illustrate the inflows and outflows of cash to finance the company from creditors and owners. Continue reading “How to Prepare and Interpret a Cash Flow Statement”